Imagine running a business where all you know are the costs of your raw materials and nothing about how much of each go into your products.
You would have difficulty estimating what price to charge, how many you had to make to satisfy your customers and when you would need to order more raw materials.
You would not know whether what you paid for those raw materials is less than the cost to buy the product from off the shelf.
This is precisely the way that most IT organizations operate.
Understanding the difference between the costs to run the business and the costs to grow or change the business is crucial to effective technology investment budgeting.
The way these costs are allocated or charged to business units has a dramatic impact on IT demand, resource allocation, and ultimately the value delivered.
IT organizations need to think about their IT budgets in the context of a business technology strategy.
Here are three basis steps, to help you do this:
Step 1: Translate IT resources into services
Like any business, IT must define what it does in terms of the products and services that it provides its customers and build the bill of materials for each one.
This requires IT to map its resources to the products and services that they support and produce a service catalogue.
The types of products and services IT supplies is a function of the firm's industry and business strategy, which determine the role that IT plays. The resources (raw materials) may be sourced internally or externally.
A service catalogue is an essential vehicle for communication and coordination between IT and its customers.
It plays a key role in IT cost transparency.
A well-implemented service catalogue:
- Helps to determe the right portfolio of service offerings
- Negotiate service-level options with the business
- Track IT budgets and consumption
- Manage the fulfillment of requests for services
The service catalogue aids business decision-making, because it gives executives a view into the portfolio of IT services in business-relevant terms.
Step 2: Developing cost models
Closely coupled to the service catalogue is a cost model for each service.
Use the cost model to ultimately determine what users will pay, providing the organization with complete cost transparency.
Developing cost models requires data from many sources. In many cases, costs will be explicit and easily linked to services.
In other cases, they will have to be estimated and allocated in some way.